How To Survive A Recession

Today (August 12th 2020) it has been officially announced that the United Kingdom has entered a recession. This is not the first time a recession has taken place, in fact, the last recession was eleven years ago which was known as "The Great Recession" and was caused by the financial and mortgage crisis of 2008-09.


The media LOVE to throw the word recession around, why? Because it brings eye balls onto what they are peddling. But the word recession should not put you into a state of panic or fear. Here we will go through what it is that you can do to survive the recession that we are currently going through.


What is a recession?


A recession is when the Gross Domestic Product (GDP) of a a country is in decline for 2 consecutive quarters. GDP is defined as 'the total value of goods produced and services provided in a country'.


So, the more that people spend the higher the GDP is going to be as there are more goods and services being sold. If a country does not produce as it typically does then we start to see a drop in the GDP.


The drop in GDP can be caused by many factors such as, lack of demand, increased interest rates, Government influence through new policies and restrictions and many other possible causes.


The 2020 Recession


Now we know what a recession is (a drop in GDP for 2 consecutive quarters) we can now look at the 2020 Recession.


The Office for National Statistics publishes a wealth of information around financials and other statistics and it is where I am getting the majority of the data here.


In Q1 of 2020 (January to March) there was a drop in GDP by -2.2%.

In Q2 of 2020 (April to June) there was a second drop in GDP to the value of -20.4%.


This second drop in GDP is the largest that we have ever seen. However, this is what I would expect to see.


Over the last 10 years we can see that the GDP of the UK hovers anywhere between 0.1% and 0.7%. During these 10 years it has also had highs of 1.2% and a low of -0.2% (excluding the 2020 quarters).


The first drop in Q1 of -2.2% would have come at a time when we were finally starting to hear about the looming pandemic. People were starting to get edgy, starting to withdraw from activity and this created the slight drop.


The second drop in Q2 of -20.4% came at a time when the UK was in complete lockdown and thus there were very few goods and services being sold. People could not go out to a restaurant to eat, they could not go to theme parks, trips to the supermarket became limited and infrequent and many more.


I am sure that you have seen the wrath of what the lockdown has done. But we are now in a position where the Government are looking to kickstart the economy once more and have eased restrictions. They have put incentives in place such as the "Eat Out To Help Out" scheme and of course have used the "Job Retention Scheme" to keep people in a job.


Moving Through The Recession


What has happened has happened, there is nothing that we can do about the past. We have to face the facts that we are in a recession and that we now need to survive what is to come.


The last three recessions that the UK has been through have lasted for five quarters (one year and 3 months). Can we expect the same to happen here? I cannot say for certain, but if we use it as a bench mark I think we would be in a good place.


Step One: Access Your Situation


This one may sting a little bit, like ripping off a bandaid but it is something that you have to do. You need to have a good understanding as to where you currently stand.


Have a look and take stock of everything. Some of the things that you might want to look at are:

- What is the income that you have coming into the house? Are you a single income household? Is there enough money coming in to cover the four walls (food, shelter, utilities, transport)?

- What expenses that you have going out? Are you paying for anything that you do not use?

- What debts it is that you have? Are you up to date with them? How much of your income is going onto debt payments?

- What your job situation is currently? Are you on furlough? Have you been made redundant? Is your job stable?


A great way to take a full assessment of your current situation is to take the last three to six months of bank statements and see what you have coming in and going out. Get as detailed as you can when you are assessing your situation. The more detailed that you can get the greater that you can prepare for what may come.


Step Two: Get On A Budget


A budget does not have to be restrictive. A budget allows you to become intentional. It tells your money where to go instead of wondering where you money went. At a time when we are in a recession we need to make sure that we know where our money is going and that it is going in the best place to give us the best chance of survival.


Personally the best budget method available is the Zero Based Budget. There are a wealth of resources online. But put simply, you take your income and subtract your expenses and you give every single penny a job. The intention is that the Toal at the end should be at zero. £0.00. There should not be a single penny not used and you should not be spending more than you have coming in.


When you are working you budget you want to look at decreasing all your expenses where possible. Get rid of all the unnecessary direct debits and expenses. Stop buying branded food and start shopping cheaper. Stop having take out. No more spontaneous online shopping.


Make sure that you Four Walls are covered first and foremost. Make sure that you have the money for food, shelter, utilities (gas, water and electric) and then transportation (getting to and from work). Everything else outside of this during a crisis is negotiable.


You also want to look at ways to increase your income. Sell everything that you do not need. Get a little part time job. Start a little side business that you can do in your free time. The more money that you have coming into the house then the better position you put yourself in.


Step Three: Get an Emergency Fund


So with an emergency fund you are looking to cover your living expenses, which you should know from your budget. The personal finance space will say you need a three to six month emergency fund, and that is all well and good, but when you are coming to this now in the middle of a recession, you cannot suddenly get an emergency fund of that size.


My rule of thumb here when you are starting out is this:


If your income is £1,000 a month and less, you should have an emergency fund of £500 to start off. If your income is over £1,000 a month then you should have an emergency fund of £1,000 to start off.


Once we are through the recession and once you have cleared your debts off then we can look to build this up to the suggested three to six month size.


Everybody can get an emergency fund of £500 to £1,000 in the space of a few days. You just have to sell everything that you do not use or need.


Step Four: Update Your CV


Whether you have a job and working full time, are on the 'Job Retention Scheme' or are currently unemployed, you should be going through this exercise.


People only seem to update their CV when they need to, well, now is a great time to update it. Who knows what the future holds and I would rather have a CV that is ready to be sent out in the next two minutes than spend half a day perfecting it and potentially losing time on available jobs.


Make sure that you work history is up to date and only put the most relevant information on there. Update your skills section with everything that you can do for the business to make them more money. Put some personality in your personal profile section. Make sure that the whole CV is on one page and that it is designed for the job and industry that you are going for. It is wasted talking about your experience sweeping a barber shop floor when you are going for a job in the recruitment space.


If you are out of work then try and get some work ASAP, even if it is agency work or delivering food of an evening. Your focus has to be to bring money into the house to keep you going.


Step Five: Where Possible Destroy Debt


If you have any debts in your name and you find yourself with extra money after you have gotten you emergency fund and budget in order, then put that money towards getting rid of the debt in your life. Getting rid of the debt gives you extra money at the end of the money to put towards an emergency fund and making sure that you are financially secure during this time.


There are a couple of methods that you can use to get rid of debt. The Debt Snowball and the Debt Avalanche.


With the Debt Snowball you put your debts in order smallest to largest, pay the minimum payments on all debts and then any extra money goes onto the first debt in the list to clear the balance. Once that debt is cleared, the monthly payment and any extra money goes to the next debt in the queue. You then rinse and repeat until all debts are gone.


The Debt Avalanche is very similar to the snowball, the only difference being that the debts are put in order of highest interest first to lowest interest last. The same method is then used as the snowball.


Step Six: Reach Out


Everyone has a complete different situation and though I feel these steps apply and help the vast majority of people, there may be a situation that is unique to you. If that is the case then reach out to people that can help.


If you need advice around work and debt then Citizens Advice offer some great advice and are able to help with a vast array of topics.


If you are having debt troubles then I strongly recommend Step Change Debt Charity and Christians Against Poverty. Both organisations are free and have a team of experts to help with your debt.


If you need assistance with benefits then against Citizens Advice and also the UK Government website has a vast catalogue of up to date information.


Step Seven: Stay Vigilant and Stay The Course


The final step to get through the recession is to make sure that you keep your finger on the pulse to any changes that may occur with work, your finances, the economy and any other area that may impact you.


Then keep consistent and if you fall of the wagon, get yourself back up quickly. What is important is not that you have not stuck to the plan, what is important is how quick you can get back on and give yourself the best chance of survival.


Action!


The above steps are not extensive and neither do I believe that they are complicated. But taking these steps at the start of a recession and sticking with them throughout is going to give you a greater chance of survival.


If you want to look more into the statistics of the UK and the recession then I strongly recommend the Office for National Statistics.


If you need any further help then do feel free to reach out, my contact form is always open. You can also find me on social media:


Instagram: www.instagram.com/RyanDerryFinance

Facebook: www.facebook.com/RyanDerryFinance

Twitter: www.twitter.com/DerryFinance


With thanks,


Ryan

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